The importance of SME’s to local economies cannot be understated – they account for around 99% of businesses in Europe and provide two out of 3 jobs in the private sector. To remain competitive in an increasingly globalized market, it is critical that policy makers make sure attention is given, not only to the growth of SME start-ups and entrepreneurship, but to strategies and policies take into consideration the challenges presented by business transfer.
Research is beginning to show that transferred businesses outperform start-ups in relation to survival, turnover, profit, innovativeness and employment. The survival rate of new businesses after 5 years is between 35% and 50% depending on the industry sector and economic climate compared with a rate of between 90% and 96% for businesses that have been transferred. The economic value in terms of job retention and labour market growth cannot be underestimated.
Losing vital knowledge and experience in any business is likely to have a significant impact; however, this can be felt even more within smaller businesses and the impact even more amplified. The uncertainty of a business transfer and the change of owner or management can have a de-stabilising effect on staff, leading to a greater risk of key personnel choosing to leave the business. This may not necessarily have to be the case and a crucial consideration of the business transfer process should be on the successful retention and transfer of skills and human capital to ensure that the tacit knowledge is retained within the business and not lost to competitors.
To help ensure knowledge transfer is achieved during the transfer phase, it is important that the respective roles of the Buyer and Seller are understood by both parties and evolve during the transfer process. When the Buyer joins the process (particularly within a family business context) he or she is often assisting the leader of the business who is also the same person who has built the company. Over a period of time, both the Buyer and the Seller work together and form a mutual leadership of the business, before the Seller withdraws completely and forms more of an advisory role to the new leader of the organisation.
The future demographic outlook will impact greatly on the business transfer process. The ageing of business owners combined with changing social attitudes is resulting in declining family sizes and shifts in aspirations. For business succession to be successfully achieved, the transfer of knowledge and human capital must take place. Through the development of an technological solutions, creating a virtual space and environment for Buyers and Sellers to connect and share knowledge about businesses; through the development of regional business incubators and clusters, where entrepreneurs can come together and share their knowledge and human capital with others in a supportive environment which facilitates innovation and growth as well as economic prosperity; and through knowledge gained by business advisors within local authorities in regions across Europe who are well placed to offer support and advice on the various dimensions of the business transfer process to local business owners and entrepreneurs.
All of these strategies have knowledge transfer at the core and can be vehicles to improve and support the business transfer process.
Knowledge and human capital is not only a vital social conduit. It is central to the success (and failure) of business transfers and the wider economic vitality of Europe.